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PETITIONER: THE COMMISSIONER OF GIFT TAX, TRIVANDRUM .

       Vs.

RESPONDENT: T.M.  LOUIZ

DATE OF JUDGMENT:       20/09/2000

BENCH: S.P.Bharucha, S.N.Phukan, Y.K.Sabharwal

JUDGMENT:

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     JUDGMENT

     Bharuch,aJ,J_.

     The  High Court of Kerala answered in the  atlirmative and against the Revenue the following question:

     "Whether, on the facts and in the circumstances of the case,  the Tribunal was right in holding that no element  of gift  was involved when the assessee retired from the  firms in which he had been a partner?"

     The Revenue is in appeal by special leave.

     The assessment year with which we are concerned is the Assessment  Year 1973-74.  The assessee retired with  effect from  1st  April.   1972 from two firms in which  he  was  a partner.   The Gift Tax Officer assessed him to gift tax  on the  basis  that,  upon such retirement, there  was  a  gift because  the  assessee  had surrendered his  rights  in  the firms.  The

     assessee   appealed   and   the  Appellate   Assistant Commissioner upheld the assessee’s contention that thera was no  voluntary  act by him and that he had only  relinquisred his  right  and  interest in the firms so that here  was  up gift.   Before  the Tribunal it was urged on behalf  of  the Revenue  that  the  amounts taken by the assessee  from  the firms  for rns shares therein was less than the market value thereof  since  the goodwill of ^he firm had not been  taken into  account.  There had, therefore, been a  relinquishment of his shares, which was a gift.  The Tribunal took the view that  on retirement, the retiring partner was only  entitled to get the value of his share in the partnership assets less Maoi  ilties,  it  was, therefore, merely an  adjustment  of rights  between  the  retiring partner  and  the  continuing partners  in the assets of the partnership and there was  no element  of transfer of interest by the retiring partner  to the  continuing  partners.   From out of the  order  of  the Tribunal, the question, quoted above, was boosed to the High court.  The High Court took much the same view as that taken by the Tribunal.

     The  learned  Attorney  General,   appearing  for  the

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revenue, drew our attention to the definitions of "gift" and ’transfer  of  property" -in the Gift Tax Act.   ’"Gift"  is defined is under:

     "’gift.’  means the transfer by one person to  another of   any  existing  movable  or  immovable   property   made voluntarily  and without consi derail on in money or money’s worth,  and  includes  the  transfer or  conversion  of  any property referred to in section 4, deemed to be a gift under that section.

     Explanation:--  A  transfer  of any building  or  part thereof referred to in clause (iii), clause (ilia) or clause (iiib) of section 27 of the Income-tax Act by the person who is deemed under the said clause to be the owner thereof made voluntarily  and  without consideration in money or  money’s worth, shall be deemed to be a gift made by such person."

     "Transfer of property" is defined as under:

     "’transfer   of  property’   means  any   disposition, conveyance,  assignment,  settlement, delivery,  payment  or other  alienation  of  property and,  without  limiting  the generality of the foregoing, includes--

     (a) the creation of a trust in property;

     (b)  the  grant  or creation of any  lease,  mortgage, charge, easement, licence, power, partnership or interest in property;

     (c)  the  exercise of a power of appointment  (whether general,  special  or subject to any restrictions as to  the persons  in  whose  favour the appointment may be  made)  of property  vested  in  any  person,  not  the  owner  of  the property,  to  determine  its disposition in favour  of  any person other than the donee of the power;  and

     (d)  any  transaction entered into by any person  with intent  thereby to diminish directly or indirectly the value of  his  own  property  and to increase  the  value  of  the property of any other person."

     In  the  submission of the learned  Attorney  General, when 1

     assessee did not voluntarily take what he was entitled to  upon retirement from the two firms;  he gave up what  he did  not take to the other partners and there was a gift  by him  to them thereof.  He laid emphasis on the fact that the definition  of  "transfer  of   propsrty’  included  a  sett iernent^  and, in his submission, there was a settlement  of accounts here.

     Our  attention  was  drawn  by  the  learned  Attorney General  to  the  Judgment  of the Calcutta  nigh  Court  in Commissioner  of Gift Tax vs.  Nani Gopal Mondal (ISO I.T.R. 469).   This  was,  as  is very  clear  from  the  following passage,  a case of an express gift and, therefore, is of no relevance to the facts of the case before us:

     "In the instant case, Mani Gopal Mondal by the deed of gift  transferred  his share or interest in the  firm  which included his share of goodwill also.  Hence, for the purpose of  payment of gift-tax, the value of one-third share of the

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assessee in the goodwill shall also be taken into account.’’

     The  learned  Attorney  General then referred  to  the judgment of this Court in Commissioner of Gift Tax.  Gujarat vs.   Chhotalal  Mohan Lall (166 i.T.R.  124).  This  was  a case in which there were three partners in a firnn:  C had a share  of seven annas, G had a share of four annas and P had a  share  of  five  annas.   P  retired  and  the  firm  was re-constituted.  G

     continued  as  before.  The share of C was reduced  to four  annas.  R was inducted as a partner with a four  annas share.   The two minor sons of C were admied to the  benrfit of  the  partnership  with a snare of  twelve  and  thirteen percent respectively.  The Question was ’whether there was a gift  by C to his two minor sons of his share of three annas partnership.  This Court held that with the admission of the two  minors to the benefit of the partnership, the right  to the  money value of the goodwill stood transferred and there had been a gift within the meaning of the Gift Tax Act.

     The definition of "gift" makes it clear that there has to  be  a  transfer by one person to another of  movable  or immovable  property:  such transfer has to be voluntary  and without consideration -in money or money’s worth.  What -is, therefore,  absolutely essential for the purposes of a  gift "is  a  transfer  of property.  "Transfer  of  property"  is defined  for  the  purposes  of  the Gift  iax  Act  as  any disposition  or  conveyance, or assignment or settlement  or delivery  or  payment or other alienation of property.   The question, therefore, is whether, on the facts of the case at hand, there has been any such transfer of property.

     To  recapitulate,  when the assessee retired from  the two  firms, he received the value of his shares therein  and the argument was that what he had received was less than the market  value of his shares since the goodwill of the  firms had not been taken into account.

     When   a  partner  reires   from  a  partnership,  the partnership  continues.  The assets and the goodwill of  the firm  continue to remain the assets and the goodwill or  the firm.   All  the retiring partner gets is the value  of  his share  in  the partnership assets les its  liabilities.   It cannot,  in  such circumstances, be held, assuming that  the retiring  parner  received less then what was his due,  that the  difference was something that he had transferred to the continuing parners within the meaning of transfer of prop ry for the purposes of the Gift Tax Act or that there was a gif liable to gift tax.

     The  work settlement in the definition of transfer  of property  in the Gift Tax Act takes colour from the  context of  the  definition and its neighbouring words and  means  a settlement upon trust and not a settlement of accounts.

     The  judgment  of  this Court in Chhotalal  Monan  Lal (ipid)  needs a brief explanation.  When P retired, the firm was  reconstituted  and Cs minor sons were admitted  to  the

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benefits  to the partnership with a three annas share at the same  time  Cs share was reduc d from seven to  four  annas. Necessarilly,  therefore,  at a notional point of time  just prior  to  the  reconsitution a hree anna share out of  C  s seven  anna share in the partnership was transferred by c to his  minor  sons.  There was therefore, a gift by c  to  his minor sons of the three anna share, and it was taxable.  The facts  of the case before us are differen and this  judgment can be of no assistance.

     We  think,  therefore,  that  the view  taken  by  the Appellate  Assistant Commissioner, the Tribunal and the High Court was the right view.

     The civil appeal is dismissed.

     No order as to costs.